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MUMBAI: Lenders under the central bank’s Prompt Corrective Action (PCA) framework may appear relatively inactive to a casual observer, but they are changing their operating remit and competing with private banks for the lucrative retail pie rather than lumpy corporate loans. Although total loans for such lenders have shrunk over the past six months, they are competing with the likes of ICICI Bank and HDFC Bank for home loans and car loans, wresting market share.

“On a relative basis, PCA banks are better off as they have started looking at retail lending and the focus is not just on recovery,” said Karthik Srinivasan, Senior VP, Icra. “Directionally, this should be positive and will depend on capital investment, NCLT resolutions, and credit growth.”

PCA banks are sitting on excess statutory liquidity and they have started picking up assets and portfolios from housing finance companies and retail NBFCs. This will add to the growth in advances in Q3 and Q4. According to central bank data, bank credit has grown 14-15% in the year to date.

Banks with common equity capital of less than 6.75%, non-performing loans of more than 6%, and a negative return on assets for two years are put under the PCA framework. “Public sector banks under PCA will take on private sector banks on retail, agriculture and MSME sector businesses,” said Mrityunjay Mahapatra, MD, Syndicate Bank. “The retail sector has its own challenges and we will have to be careful.”

Retail loans, especially low-ticketsize housing loans, were not a constraint for PCA banks. At some of the public sector banks, capital as a factor of consideration is stable. Risk management at public sector banks has been strengthened under PCA. All PCA banks have appointed chief risk officers and recruited people in risk management roles.

Public sector banks under the PCA framework have become stable as the balance sheet is more granular, with retail or home-loans increasing. Higher CASA ratios have also resulted in the normalization of core profitability, Jefferies said in a report. Banks under PCA have been reducing their balance sheets by 5-10% every quarter since the last 2-3 years, mostly by selling and reducing corporate exposure and unsecured personal loans. This is when retail loans grew 16.2% and home loans 52.6% in the last three years.

Banks are focusing on individual home loan portfolios among other retail loans, either by acquiring customers in rural and semi-urban areas or by acquiring portfolios from liquidity-constrained housing finance companies. Their share of retail loans has risen from 15% in March 2015 to 19% in September 2018, while share of home loans in retail has climbed from 46% to 61% in the same period.

A Jefferies report said that banks under PCA have lost market share to private sector banks in corporate loans and unsecured personal loans, and that it will be a Herculean task to claw back.

Under the PCA framework, the central bank has imposed lending and other restrictions on weaker lenders. They include Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank, and Bank of Maharashtra. The framework has come into question after it affected credit flow to the MSME sector. The government and the RBI have agreed to form a committee to relax PCA norms.